Dollar Climbs as Hot US Inflation Lifts Treasury Yields and Rate-Hike Bets

what happened

The US dollar gained on Wednesday after September consumer price data came in above forecasts. The ICE DXY index climbed 0.7% to 102.909, its highest level in 18 months. Annual CPI inflation reached 3.7% in September, up from 3.4% in August, against a 3.6% forecast in a Wall Street Journal survey. The core rate, which excludes food and energy, also beat expectations at 2.6%.

Burke Koonce, chief investment strategist at Trust Company of the South, called the report a hot print and said inflationary pressures appear to be persisting. Price gains were broad-based, he noted, which suggests oil is not the only driver. He added that the AI boom could become an inflationary force.

According to the CME FedWatch tool, the odds of a Fed rate hike at the meeting in two weeks rose to 43% from 22% on Tuesday. Higher Treasury yields and reduced appetite for risk supported the dollar, which rose almost 1% against the euro and Swiss franc and 0.4% versus the yen.

why it matters

For markets, the key signal is that inflation is moving further from the Fed's 2% target, so traders are pricing in a greater chance of tighter policy. Joel Kruger of LMAX Group warned that Fed hawkishness is already priced in and that the dollar rally could be short-lived, since the report does not look like the start of a new uptrend for the currency.

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